xQuarterly report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934

For the quarterly period
ended September 27, 2009

OR

oTransition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission
File Number: 0-21660

PAPA JOHNS INTERNATIONAL, INC.

(Exact
name of registrant as specified in its charter)

Delaware

61-1203323

(State or other jurisdiction of

(I.R.S. Employer Identification

incorporation or organization)

number)

2002 Papa Johns Boulevard

Louisville, Kentucky
40299-2367

(Address
of principal executive offices)

(502)
261-7272

(Registrants
telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting
company o

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x

At October 28, 2009, there were outstanding 28,239,855 shares of
the registrants common stock, par value $0.01 per share.

Note: The balance sheet at December 28, 2008
has been derived from the audited consolidated financial statements at that
date, but does not include all information and footnotes required by accounting
principles generally accepted in the United States for a complete set of
financial statements. See Note 2 for modifications made as a result of adopting
recent accounting pronouncements.

Change in valuation of
interest rate swap agreements, net of tax of ($64)







(142

)







(142

)

Foreign currency
translation







(254

)







(254

)

Comprehensive income

25,045

Exercise of stock
options

259

3

4,614









4,617

Tax effect related to
exercise of non-qualified stock options





770









770

Acquisition of treasury
stock

(1,397

)









(37,659

)



(37,659

)

Distributions to
noncontrolling interests













(1,110

)

(1,110

)

Other





2,997









2,997

Balance
at September 28, 2008

27,639

$

352

$

216,979

$

(240

)

$

120,983

$

(216,822

)

$

8,346

$

129,598

Balance
at December 28, 2008

27,637

$

352

$

216,553

$

(3,818

)

$

133,759

$

(216,860

)

$

8,252

$

138,238

Comprehensive income:

Net income









43,755



2,914

46,669

Change in valuation of
interest rate swap agreements, net of tax of $519







921







921

Foreign currency
translation







1,304







1,304

Comprehensive income

48,894

Exercise of stock
options

598

6

9,649









9,655

Tax effect related to
exercise of non-qualified stock options





770









770

Acquisition of treasury
stock

(275

)









(4,958

)



(4,958

)

Distributions to
noncontrolling interests













(2,805

)

(2,805

)

Other





4,258









4,258

Balance
at September 27, 2009

27,960

$

358

$

231,230

$

(1,593

)

$

177,514

$

(221,818

)

$

8,361

$

194,052

At September 28, 2008, the accumulated other comprehensive loss of
$240 was comprised of a net unrealized loss on the interest rate swap
agreements of $1,442, partially offset by unrealized foreign currency
translation gains of $1,202.

At September 27, 2009, the accumulated other comprehensive loss of
$1,593 was comprised of a net unrealized loss on the interest rate swap
agreements of $3,029 and an $88 pension plan liability for PJUK, partially
offset by unrealized foreign currency translation gains of $1,524.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States (GAAP) for
complete financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 27,
2009 are not necessarily indicative of the results that may be expected for the
fiscal year ended December 27, 2009. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Annual
Report on Form 10-K for Papa Johns International, Inc. (referred to
as the Company, Papa Johns or in the first person notations of we, us
and our) for the year ended December 28, 2008.

2.Accounting Standards Update

Generally Accepted Accounting
Principles

In June 2009, the
Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification or ASC), which
became the single official source of authoritative, nongovernmental U.S.
GAAP, other than rules and interpretive releases issued by the Securities
and Exchange Commission. The Codification did not change GAAP but reorganized
the literature and changed the naming mechanism by which topics are referenced.
Companies must begin using the Codification for interim and annual periods
ending after September 15, 2009. As required, references to
pre-codification accounting literature have been changed throughout this
quarterly report on Form 10-Q to appropriately reference the Codification.
The Companys accounting policies and amounts presented in the financial
statements were not impacted by this change.

Fair
Value Measurements and Disclosures

The
Fair Value Measurements and Disclosures topic of the FASBs ASC requires
companies to determine fair value based on the price that would be received to
sell the asset or paid to transfer the liability to a market participant. The Fair
Value Measurements and Disclosures topic emphasizes that fair value is a
market-based measurement, not an entity-specific measurement. The new guidance
required a phased-in approach: (1) phase one was effective for financial
assets and liabilities in our first quarter of fiscal 2008 and (2) phase
two was effective for our first quarter of fiscal 2009. The new provisions did
not have a significant impact on our 2008 and 2009 financial statements.

Business
Combinations

The
Business Combinations topic of the ASC establishes principles and requirements
for how an acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest; recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and determines
what information to disclose to enable financial statement users to evaluate
the nature and financial effects of the business combination. The latest
guidance in the Business Combinations topic of the ASC applies to business
combinations for which the

acquisition
date is on or after December 15, 2008. The adoption of the new guidance
had no impact on our 2009 consolidated financial statements.

Consolidation

The
Consolidation topic of the ASC requires all entities to report noncontrolling
(minority) interests in subsidiaries as equity in the consolidated financial
statements, but separate from the equity of the parent company. The
Consolidation topic further requires that consolidated net income be reported
at amounts attributable to the parent and the noncontrolling interest, rather
than expensing the income attributable to the minority interest holder.
Additionally, sufficient disclosures are required to clearly identify and
distinguish between the interests of the parent company and the interests of
the noncontrolling owners, including a disclosure on the face of the
consolidated statements for income attributable to the noncontrolling interest
holder. The presentation and disclosure requirements were applied
retrospectively for all periods presented, and thus, the prior year financial
statements have been modified to incorporate the new requirements.

Papa
Johns had two joint venture arrangements as of September 27, 2009 and September 28,
2008, which were as follows:

Restaurants

Noncontrolling

as of

Restaurant

Papa Johns

Interest

Sept. 27, 2009

Locations

Ownership *

Ownership *

Star
Papa, LP

75

Texas

51

%

49

%

Colonels
Limited, LLC

51

Maryland and Virginia

70

%

30

%

*The ownership percentages
were the same for both the 2009 and 2008 periods presented in the accompanying
consolidated financial statements.

The
pre-tax income of the joint ventures totaled $2.3 million and $7.6 million for
the three and nine months ended September 27, 2009, respectively, compared
to $700,000 and $4.0 million for the three months and nine months ended September 28,
2008, respectively. The portion of pre-tax income attributable to the
noncontrolling interest holders was approximately $900,000 and $2.9 million for
the three and nine months ended September 27, 2009, respectively, compared
to approximately $200,000 and $1.4 million for the three and nine months ended September 28,
2008, respectively. The noncontrolling interest holders equity in the joint
venture arrangements totaled $8.4 million as of September 27, 2009 and
$8.3 million as of December 28, 2008.

Derivatives
and Hedging

In
the first quarter of 2009, Papa Johns adopted the latest provisions of the ASC
topic, Derivatives and Hedging. The guidance enhances the required disclosures
regarding derivatives and hedging activities, including disclosures regarding
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted, and
how derivative instruments and related hedged items affect an entitys
financial position, results of operations and cash flows. See Note 5 for
additional information.

Subsequent
Events

The Subsequent Events topic
of the ASC requires public companies to evaluate subsequent events through the
date the financial statements are issued. Accordingly, we evaluated for
subsequent events occurring after September 27, 2009 (our financial
statement date) through November 3, 2009 (the date this report was filed).
We determined no subsequent events disclosures were required.

In June 2009, the FASB
issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R). SFAS No. 167 has been deemed authoritative literature even though
the provisions of this standard have not yet been integrated into the ASC.

The objective of SFAS No. 167
is to improve the financial reporting of companies involved with variable
interest entities (VIEs). As required by this statement, the provisions
required by FIN 46(R) will be applicable for entities previously
considered qualifying special-purpose entities, as the concept of these
entities was eliminated from SFAS No. 140 with the issuance of SFAS No. 166,
Accounting for Transfers of Financial
Assetsan amendment of FASB StatementNo. 140.
This Statement amends FIN 46(R) to replace the quantitative-based
risks and rewards calculation for determining which enterprise, if any, has a
controlling financial interest in the VIE with a qualitative approach focused
on identifying which company has the power to direct the activities of a VIE
that most significantly impact the entitys economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity. Additionally, this statement requires a company to
perform ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. Prior to this statement, a company
was only required to reassess the status when specific events occurred. We are
required to adopt the provisions of SFAS No. 167 for our first quarter of
2010. We have not yet assessed the impact, if any, of the adoption of this
statement on our financial statements.

Deferred Income Tax Assets and
Tax Reserves

Papa
Johns is subject to income taxes in the United States and several foreign
jurisdictions. Significant judgment is required in determining Papa Johns
provision for income taxes and the related assets and liabilities. The
provision for income taxes includes income taxes paid, currently payable or
receivable and those deferred. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using enacted tax rates and laws that
are expected to be in effect when the differences reverse. Deferred tax assets
are also recognized for the estimated future effects of tax loss carryforwards.
The effect on deferred taxes of changes in tax rates is recognized in the
period in which the enactment date changes. As a result, our effective tax rate
may fluctuate. Valuation allowances are established when necessary on a
jurisdictional basis to reduce deferred tax assets to the amounts we expect to
realize.

As
of September 27, 2009, we had a net deferred income tax asset balance of
$18.5 million, of which approximately $7.7 million relates to the net operating
loss carryforward of BIBP Commodities, Inc. (BIBP). We have not provided
a valuation allowance for the deferred income tax assets associated with our
domestic operations, including BIBP, since we believe it is more likely than
not that future earnings will be sufficient to ensure the realization of the
net deferred income tax assets for federal and state purposes.

Certain
tax authorities periodically audit the Company. We provide reserves for
potential exposures based on the requirements of the Income Taxes topic of the
ASC. We evaluate these issues on a quarterly basis to adjust for events, such
as court rulings or audit settlements that may impact our ultimate payment for
such exposures.

3.Acquisitions
and Dispositions

During the second quarter of 2009, we completed the acquisition of 11
restaurants in Florida. The purchase price for those restaurants totaled $2.8
million, which was comprised of cash and the cancellation of a $2.3 million
note due to us, of which approximately $1.5 million was recorded as goodwill.
The acquisition was accounted for by the purchase method of accounting, whereby
operating results subsequent to the acquisition date are included in our
consolidated financial results.

During the second quarter of 2009, we completed the
sale of ten Company-owned restaurants located in New Mexico. The sales price of
$1.1 million consisted of a cash payment of $600,000 and notes financed by Papa

Johns to the purchasers, who are current Papa
Johns franchisees, for $500,000. We recorded a pre-tax gain of approximately
$350,000 associated with the sale of the restaurants.

4.Accounting
for Variable Interest Entities

The Consolidation topic of the ASC provides a framework for identifying
variable interest entities (VIEs) and determining when a company should
include the assets, liabilities, non-controlling interests and results of
activities of a VIE in its consolidated financial statements.

In general, a VIE is a corporation,
partnership, limited-liability company, trust, or any other legal structure
used to conduct activities or hold assets that either (1) has an
insufficient amount of equity to carry out its principal activities without
additional subordinated financial support, (2) has a group of equity
owners that are unable to make significant decisions about its activities, or (3) has
a group of equity owners that do not have the obligation to absorb losses or
the right to receive returns generated by its operations.

Consolidation of a VIE is required if a party
with an ownership, contractual or other financial interest in the VIE (a
variable interest holder) is obligated to absorb a majority of the risk of
loss from the VIEs activities, is entitled to receive a majority of the VIEs
residual returns (if no party absorbs a majority of the VIEs losses), or both.
A variable interest holder that consolidates the VIE is called the primary
beneficiary. Upon consolidation, the primary beneficiary generally must
initially record all of the VIEs assets, liabilities and non-controlling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest. Disclosures about VIEs that the
variable interest holder is not required to consolidate but in which it has a
significant variable interest are also required.

We have a purchasing arrangement with BIBP
Commodities, Inc. (BIBP), a special-purpose entity formed at the
direction of our Franchise Advisory Council for the sole purpose of reducing
cheese price volatility to domestic system-wide restaurants. BIBP is an
independent, franchisee-owned corporation. BIBP purchases cheese at the market
price and sells it to our distribution subsidiary, PJ Food Service, Inc.
(PJFS), at a fixed price. PJFS in turn sells cheese to Papa Johns
restaurants (both Company-owned and franchised) at a set price. Effective in March 2009,
we modified the BIBP formula to establish the price of cheese on a more
frequent basis based on projected spot market prices. At the current rate of
repayment, BIBPs cumulative deficit would be substantially repaid at the end
of 2011. PJFS purchased $35.5 million and $106.5 million of cheese from BIBP
for the three and nine months ended September 27, 2009, respectively,
compared to $45.1 million and $125.3 million in the 2008 comparable periods,
respectively.

We are deemed the primary beneficiary of BIBP, a VIE, for accounting
purposes. We recognize the operating losses generated by BIBP if BIBPs
shareholders equity is in a net deficit position. Further, we will recognize
the subsequent operating income generated by BIBP up to the amount of any
losses previously recognized. We
recognized pre-tax income of $5.1 million ($3.2 million net of tax, or $0.12
per share) and $21.0 million ($13.3 million net of tax, or $0.48 per share) for
the three and nine months ended September 27, 2009, respectively, and
pre-tax income of $2.8 million ($1.8 million net of tax, or $0.07 per share)
for the three months ended September 28, 2008 and a pre-tax loss of $11.4
million ($7.4 million net of tax, or $0.27 per share) for the nine months ended
September 28, 2008, respectively, from the consolidation of BIBP. The
impact on future operating income from the consolidation of BIBP is expected to
continue to be significant for any given reporting period due to the volatility
of the cheese market.

BIBP has a $10.0 million line of credit with
a commercial bank, which is guaranteed by Papa Johns. In addition, Papa Johns
has agreed to provide additional funding in the form of a loan to BIBP. As of September 27,
2009, BIBP had outstanding borrowings of $875,000 and a letter of credit of
$3.0 million outstanding under the commercial line of credit facility and
outstanding borrowings of $26.3 million with Papa Johns.

In addition, Papa Johns has extended loans
to certain franchisees. Papa Johns was deemed the primary beneficiary of five
franchise entities as of September 27, 2009 and three franchise entities
as of September 28, 2008, even though we had no ownership in the franchise
entities. The five franchise entities at September 27, 2009 operate a
total of 65 restaurants with annual revenues approximating $44.0 million. Our
net loan balance receivable from those entities was $7.8 million at September 27,
2009, with no further funding commitments. The consolidation of those franchise
entities had no significant impact on Papa Johns operating results and is not
expected to have a significant impact in future periods.

The following table summarizes the balance
sheets for our consolidated VIEs as of September 27, 2009 and December 28,
2008:

September 27, 2009

December 28, 2008

(In thousands)

BIBP

Franchisees

Total

BIBP

Franchisees

Total

Assets:

Cash
and cash equivalents

$

3,068

$

1,931

$

4,999

$



$

70

$

70

Accounts
receivable - Papa Johns

1,400



1,400

4,687



4,687

Other
current assets

3,306

690

3,996

1,089

55

1,144

Net
property and equipment



6,595

6,595



4,314

4,314

Goodwill



1,409

1,409



4,556

4,556

Deferred
income taxes

7,713



7,713

15,057



15,057

Other
noncurrent assets



9

9







Total
assets

$

15,487

$

10,634

$

26,121

$

20,833

$

8,995

$

29,828

Liabilities and stockholders equity (deficit):

Accounts
payable and accrued expenses

$

2,363

$

1,255

$

3,618

$

5,391

$

381

$

5,772

Short-term
debt - third party

875



875

7,075



7,075

Short-term
debt - Papa Johns

26,339

7,842

34,181

35,743

7,991

43,734

Total
liabilities

29,577

9,097

38,674

48,209

8,372

56,581

Stockholders
equity (deficit)

(14,090

)

1,537

(12,553

)

(27,376

)

623

(26,753

)

Total
liabilities and stockholders equity (deficit)

$

15,487

$

10,634

$

26,121

$

20,833

$

8,995

$

29,828

5.Debt

Our debt is comprised of the following (in thousands):

September 27,

December 28,

2009

2008

Revolving
line of credit

$

99,000

$

123,500

Debt
associated with VIEs *

875

7,075

Other

58

79

Total
debt

99,933

130,654

Less:
current portion of debt

(875

)

(7,075

)

Long-term
debt

$

99,058

$

123,579

*Papa Johns is the
guarantor of BIBPs outstanding debt.

In January 2006, we executed a five-year, unsecured revolving
credit facility (Credit Facility) totaling $175.0 million. Under the Credit
Facility, outstanding balances accrue interest at 50.0 to 100.0 basis points
over the London Interbank Offered Rate (LIBOR) or other bank-developed rates, at
our option. The commitment fee on

the unused balance ranges from 12.5 to 20.0 basis points. The increment
over LIBOR and the commitment fee are determined quarterly based upon the ratio
of total indebtedness to earnings before interest, taxes, depreciation and
amortization (EBITDA), as defined. The remaining availability under our line of
credit, reduced for certain outstanding letters of credit, approximated $58.0
million and $31.1 million as of September 27, 2009 and December 28,
2008, respectively. The fair value of our outstanding debt approximates the
carrying value since our debt agreements are variable-rate instruments.

The
Credit Facility contains customary affirmative and negative covenants,
including financial covenants requiring the maintenance of specified fixed
charges and leverage ratios. At September 27, 2009 and December 28,
2008, we were in compliance with these covenants.

We presently have two interest rate swap agreements
(swaps) that provide fixed interest rates, as compared to LIBOR, as follows:

Floating
Rate Debt

Fixed
Rates

The first interest rate swap agreement:

January 16,
2007 to January 15, 2009

$

60
million

4.98

%

January 15,
2009 to January 15, 2011

$

50
million

4.98

%

The second interest rate swap agreement:

January 31,
2009 to January 31, 2011

$

50
million

3.74

%

Our swaps are derivative instruments that are designated as cash flow
hedges because the swaps provide a hedge against the effects of rising interest
rates on present and/or forecasted future borrowings. The effective portion of
the gain or loss on the swaps is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during
which the swaps affect earnings. Gains or losses on the swaps representing
either hedge ineffectiveness or hedge components excluded from the assessment
of effectiveness are recognized in current earnings. Amounts payable or
receivable under the swaps are accounted for as adjustments to interest
expense.

The following tables provide information on the
location and amounts of our swaps in the accompanying consolidated financial
statements (in thousands):

Fair
Values of Derivative Instruments

Liability Derivatives

Balance Sheet Location

Fair Value
Sept. 27, 2009

Fair Value
Dec. 28, 2008

Derivatives designated
as hedging instruments:

Interest rate swaps

Other long-term liabilities

$

4,773

$

6,173

There were no derivatives
that were not designated as hedging instruments under the provisions of the ASC
topic, Derivatives and Hedging.

Effect
of Derivative Instruments on the Consolidated Financial Statements

Derivatives - Cash
Flow Hedging
Relationships

Amount of Gain or
(Loss) Recognized in
OCI on Derivative
(Effective Portion)

Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)

Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)

Location of Gain
or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing)

Amount of Gain or
(Loss) Recognized in
Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)*

Sept. 27,
2009

Sept. 28,
2008

Sept. 27,
2009

Sept. 28,
2008

Sept. 27,
2009

Sept. 28,
2008

Interest rate swaps:

Interest expense:

Interest expense:

Quarter to date

$

348

$

87

Quarter to date

$

(1,030

)

$

(586

)

Quarter to date

$

(40

)

$



Year to date

$

921

$

(142

)

Year to date

$

(2,996

)

$

(1,428

)

Year to date

$

(40

)

$



*A portion of our second interest rate swap became
over-hedged during the third quarter of 2009 since the outstanding debt balance
associated with this swap was $49 million (floating rate debt of the swap is
$50 million).

The weighted average interest rates for our
Credit Facility, including the impact of the previously mentioned swap
agreements, were 4.98% and 4.74% for the three months ended September 27,
2009 and September 28, 2008, respectively, and 4.75% and 5.04% for the
nine months ended September 27, 2009 and September 28, 2008,
respectively. Interest paid, including payments made or received under the
swaps, was $1.3 million and $4.1 million for the three and nine months ended September 27,
2009, respectively, compared to $1.9 million and $5.4 million for the three and
nine months ended September 28, 2008, respectively. As of September 27,
2009, the portion of the $4.8 million interest rate swap liability that would
be reclassified into earnings during the next 12 months as interest expense
approximates $3.6 million.

The
calculations of basic earnings per common share and earnings per common share 
assuming dilution are as follows (in thousands, except per share data):

Three Months Ended

Nine Months Ended

Sept. 27, 2009

Sept. 28, 2008

Sept. 27, 2009

Sept. 28, 2008

Basic
earnings per common share:

Net
income, net of noncontrolling interests

$

11,739

$

7,747

$

43,755

$

24,020

Weighted
average shares outstanding

27,919

27,787

27,783

28,286

Basic
earnings per common share

$

0.42

$

0.28

$

1.57

$

0.85

Earnings
per common share - assuming dilution:

Net
income, net of noncontrolling interests

$

11,739

$

7,747

$

43,755

$

24,020

Weighted
average shares outstanding

27,919

27,787

27,783

28,286

Dilutive
effect of outstanding stock compensation awards

92

197

169

192

Diluted
weighted average shares outstanding

28,011

27,984

27,952

28,478

Earnings
per common share - assuming dilution

$

0.42

$

0.28

$

1.57

$

0.84

Shares subject to options
to purchase common stock with an exercise price greater than the average market
price of our common stock for the three and nine months ended September 27,
2009 were not included in the computation of the dilutive effect of common
stock options because the effect would have been antidilutive. The weighted average number of shares subject
to the antidilutive options were 1.4 million and 1.0 million for the three- and
nine-month periods ending September 27, 2009 and September 28, 2008,
respectively.

Selected
franchisees have borrowed funds from our subsidiary, Capital Delivery, Ltd.,
principally for use in the acquisition, construction and development of their
restaurants. We have also entered into loan agreements with certain franchisees
that purchased restaurants from us or from other franchisees. In addition, as
part of the 2006 sale of our former Perfect Pizza operations, we have a loan
outstanding from the purchaser. Loans outstanding, net of allowance for
doubtful accounts, were approximately $11.2 million as of September 27,
2009 and $7.6 million as of December 28, 2008.

We
have recorded reserves of $7.3 million and $5.4 million as of September 27,
2009 and December 28, 2008, respectively, for potentially uncollectible
notes receivable from franchisees and the purchaser of the Perfect Pizza
operations. We concluded the reserves were necessary due to certain franchisees
economic performance and underlying collateral value and credit risk related to
the Perfect Pizza operations.

In
connection with the 2006 sale of our former Perfect Pizza operations, we remain
contingently liable for payment under approximately 70 lease arrangements,
primarily associated with Perfect Pizza restaurant sites for which the Perfect
Pizza franchisor is primarily liable. The leases have varying terms, the latest
of which expires in 2017. The potential amount of undiscounted payments we
could be required to make in the event of non-payment by Perfect Pizza and
associated franchisees is approximately $6.2 million. We have not recorded a
liability with respect to such leases as of September 27, 2009, as our
cross-default provisions with the Perfect Pizza franchisor substantially reduce
the risk that we will be required to make payments under these leases at the
present time.

The domestic restaurant
segment consists of the operations of all domestic (domestic is defined as
contiguous United States) Company-owned restaurants and derives its revenues
principally from retail sales of pizza and side items, such as breadsticks,
cheesesticks, chicken strips, chicken wings, dessert pizza, and soft drinks to
the general public. The domestic commissary segment consists of the operations
of our regional dough production and product distribution centers and derives
its revenues principally from the sale and distribution of food and paper
products to domestic Company-owned and franchised restaurants. The domestic
franchising segment consists of our franchise sales and support activities and
derives its revenues from sales of franchise and development rights and
collection of royalties from our domestic franchisees. The international
operations segment principally consists of our Company-owned restaurants and
distribution sales to franchised Papa Johns restaurants located in the United
Kingdom, China and Mexico and our franchise sales and support activities, which
derive revenues from sales of franchise and development rights and the
collection of royalties from our international franchisees. VIEs consist of
entities in which we are deemed the primary beneficiary, as defined in Note 4,
and include BIBP and certain franchisees to which we have extended loans. All
other business units that do not meet the quantitative thresholds for determining
reportable segments consist of operations that derive revenues from the sale,
principally to Company-owned and franchised restaurants, of printing and
promotional items, risk management services, and information systems and
related services used in restaurant operations and certain partnership
development activities.

Generally, we evaluate
performance and allocate resources based on profit or loss from operations
before income taxes and eliminations. Certain administrative and capital costs
are allocated to segments based upon predetermined rates or actual estimated
resource usage. We account for intercompany sales and transfers as if the sales
or transfers were to third parties and eliminate the related profit in
consolidation.

Our reportable segments
are business units that provide different products or services. Separate
management of each segment is required because each business unit is subject to
different operational issues and strategies. No single external customer
accounted for 10% or more of our consolidated revenues.

The revenues from
external customers for variable interest entities are attributable to the
franchise entities to which we have extended loans that qualify as
consolidated VIEs. The intersegment revenues for variable interest entities
are attributable to BIBP.

(2)

Represents BIBPs operating income (loss), net of
minority interest income for each year, if any.

Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations

Results
of Operations and Critical Accounting Policies and Estimates

Papa Johns International, Inc.
(referred to as the Company, Papa Johns or in the first person notations
of we, us and our) began operations in 1985. At September 27, 2009,
there were 3,458 Papa Johns restaurants (613 Company-owned and 2,845
franchised) operating in all 50 states and in 29 countries. Our revenues are
principally derived from retail sales of pizza and other food and beverage
products to the general public by Company-owned restaurants, franchise
royalties, sales of franchise and development rights, sales to franchisees of
food and paper products, printing and promotional items, risk management
services, and information systems and related services used in their
operations.

The results of operations
are based on the preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States (GAAP). The
preparation of consolidated financial statements requires management to select
accounting policies for critical accounting areas and make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements. Significant changes in assumptions and/or conditions in our
critical accounting policies could materially impact the operating results. We
have identified the following accounting policies and related judgments as
critical to understanding the results of our operations:

Allowance
for Doubtful Accounts and Notes Receivable

We establish reserves for
uncollectible accounts and notes receivable based on overall receivable aging
levels and a specific evaluation of accounts and notes for franchisees with
known financial difficulties. These reserves and corresponding write-offs could
significantly increase if the identified franchisees begin to or continue to
experience deteriorating financial results. We have also established a reserve
for notes receivable from the purchaser of our former Perfect Pizza operations.

Long-Lived
and Intangible Assets

The recoverability of long-lived assets is
evaluated if impairment indicators exist. Indicators of impairment include
historical financial performance, operating trends and our future operating
plans. If impairment indicators exist, we evaluate the recoverability of
long-lived assets on an operating unit basis (e.g., an individual restaurant)
based on undiscounted expected future cash flows before interest for the
expected remaining useful life of the operating unit. Recorded values for
long-lived assets that are not expected to be recovered through undiscounted
future cash flows are written down to current fair value, which is generally
determined from estimated discounted future net cash flows for assets held for
use or estimated net realizable value for assets held for sale.

The recoverability of indefinite-lived
intangible assets (i.e., goodwill) is evaluated annually or more frequently if
impairment indicators exist, on a reporting unit basis by comparing the
estimated fair value to its carrying value. Our estimated fair value for Company-owned
restaurants is comprised of two components. The first component is the
estimated cash sales price that would be received at the time of the sale and
the second component is an investment in the continuing franchise agreement,
representing the discounted value of future royalties less any incremental
direct operating costs, that would be collected under the ten-year franchise
agreement.

At
September 27, 2009, we had a net investment of approximately $21.1 million
associated with our United Kingdom subsidiary (PJUK). During the fourth quarter
of 2008, we recorded a goodwill impairment charge of $2.3 million associated
with our PJUK operations. We have developed plans for PJUK to continue to
improve its operating results. The plans include efforts to increase Papa Johns
brand awareness in the United Kingdom, improve sales and profitability for
individual restaurants and increase net PJUK franchised unit openings over the
next several years. We will continue to periodically evaluate

our
progress in achieving these plans. If our initiatives with PJUK are not
successful, future impairment charges could occur. Additionally, if financial
performance were to deteriorate in certain less profitable domestic markets,
future impairment charges could occur.

Insurance
Reserves

Our insurance programs
for workers compensation, general liability, owned and non-owned automobiles
and health insurance coverage provided to our employees are self-insured up to
certain individual and aggregate reinsurance levels. Losses are accrued based
upon estimates of the aggregate retained liability for claims incurred using
certain third-party actuarial projections and our claims loss experience. The
estimated insurance claims losses could be significantly affected should the
frequency or ultimate cost of claims significantly differ from historical
trends used to estimate the insurance reserves recorded by the Company.

From
October 2000 through September 2004, our captive insurance company,
which provided insurance to our franchisees, was self-insured. In October 2004,
a third-party commercial insurance company began providing fully-insured coverage
to franchisees participating in the franchise insurance program. Accordingly,
this arrangement eliminates our risk of loss for franchise insurance coverage
written after September 2004. Our operating income is still subject to
potential adjustments for changes in estimated insurance reserves for policies
written from the inception of the captive insurance company in October 2000
to September 2004. Such adjustments, if any, will be determined in part
based upon periodic actuarial valuations.

Deferred Income Tax Assets and Tax Reserves

Papa
Johns is subject to income taxes in the United States and several foreign
jurisdictions. Significant judgment is required in determining Papa Johns
provision for income taxes and the related assets and liabilities. Income taxes
are accounted for under the Income Taxes topic of the Accounting Standards
Codification (ASC). The provision for income taxes includes income taxes
paid, currently payable or receivable and those deferred. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities, and are measured using enacted tax
rates and laws that are expected to be in effect when the differences reverse.
Deferred tax assets are also recognized for the estimated future effects of tax
loss carryforwards. The effect on deferred taxes of changes in tax rates is
recognized in the period in which the enactment date changes. As a result, our effective tax rate may
fluctuate. Valuation allowances are established when necessary on a
jurisdictional basis to reduce deferred tax assets to the amounts we expect to
realize.

As
of September 27, 2009, we had a net deferred income tax asset balance of
$18.5 million, of which approximately $7.7 million relates to the net operating
loss carryforward of BIBP Commodities, Inc. (BIBP). We have not provided
a valuation allowance for the deferred income tax assets associated with our
domestic operations, including BIBP, since we believe it is more likely than
not that future earnings will be sufficient to ensure the realization of the
net deferred income tax assets for federal and state purposes.

Certain
tax authorities periodically audit the Company. We provide reserves for
potential exposures based on the requirements of the Income Taxes topic of the
ASC. We evaluate these issues on a quarterly basis to adjust for events, such
as court rulings or audit settlements, which may impact our ultimate payment
for such exposures.

Consolidation
of BIBP Commodities, Inc. as a Variable Interest Entity

BIBP is a
franchisee-owned corporation that conducts a cheese-purchasing program on
behalf of domestic Company-owned and franchised restaurants. As required by the
Consolidation topic of the ASC, we

consolidate the financial
results of BIBP since we qualify as the primary beneficiary, as defined, of
BIBP. We recognized pre-tax income of $5.1 million and $21.0 million for the
three and nine months ended September 27, 2009 and pre-tax income of $2.8
million for the three months ended September 28, 2008 and a pre-tax loss
of $11.4 million for the nine months ended September 28, 2008 from the
consolidation of BIBP. We expect the consolidation of BIBP to continue to have
a significant impact on Papa Johns operating income in future periods due to
the volatility of cheese prices. Papa Johns will recognize the operating
losses generated by BIBP if the shareholders equity of BIBP is in a net
deficit position. Further, Papa Johns will recognize subsequent operating
income generated by BIBP up to the amount of BIBP losses previously recognized
by Papa Johns.

Recent
Accounting Pronouncements

Fair
Value Measurements and Disclosures

The
Fair Value Measurements and Disclosures topic of the Financial Accounting
Standards Boards (FASB) ASC requires companies to determine fair value based
on the price that would be received to sell the asset or paid to transfer the
liability to a market participant. The Fair Value Measurements and Disclosures
topic emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. The new guidance required a phased-in approach: (1) phase
one was effective for financial assets and liabilities in our first quarter of
fiscal 2008 and (2) phase two was effective for our first quarter of
fiscal 2009. The new provisions did not have a significant impact on our 2008
and 2009 financial statements.

Business
Combinations

The
Business Combinations topic of the ASC establishes principles and requirements
for how an acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest; recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and determines
what information to disclose to enable financial statement users to evaluate
the nature and financial effects of the business combination. The latest
guidance in the Business Combinations topic of the ASC applies to business
combinations for which the acquisition date is on or after December 15,
2008. The adoption of the new guidance had no impact on our 2009 consolidated
financial statements.

Consolidation

The
Consolidation topic of the ASC requires all entities to report noncontrolling
(minority) interests in subsidiaries as equity in the consolidated financial
statements, but separate from the equity of the parent company. The
Consolidation topic further requires that consolidated net income be reported
at amounts attributable to the parent and the noncontrolling interest, rather
than expensing the income attributable to the minority interest holder.
Additionally, sufficient disclosures are required to clearly identify and
distinguish between the interests of the parent company and the interests of
the noncontrolling owners, including a disclosure on the face of the
consolidated statements for income attributable to the noncontrolling interest
holder. The presentation and disclosure requirements were applied
retrospectively for all periods presented, and thus, the prior year financial
statements have been modified to incorporate the new requirements.

In
the first quarter of 2009, Papa Johns adopted the latest provisions of the ASC
topic, Derivatives and Hedging. The guidance enhances the required
disclosures regarding derivatives and hedging activities, including disclosures
regarding how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted, and how derivative instruments and related hedged

The Subsequent Events
topic of the ASC requires public companies to evaluate subsequent events
through the date the financial statements are issued. Accordingly, we evaluated
for subsequent events occurring after September 27, 2009 (our financial
statement date) through November 3, 2009 (the date this report was filed).
We determined no subsequent events disclosures were required.

SFAS No. 167, Amendments to FASB Interpretation No. 46(R)

In June 2009, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 167 has been deemed
authoritative literature even though the provisions of this standard have not
yet been integrated into the ASC.

The objective of SFAS No. 167
is to improve the financial reporting of companies involved with variable
interest entities (VIEs). As required by this statement, the provisions
required by FIN 46(R) are now applicable for entities previously
considered qualifying special-purpose entities, as the concept of these
entities was eliminated from SFAS No. 140 with the issuance of SFAS No. 166,
Accounting for Transfers of Financial
Assetsan amendment of FASB StatementNo. 140.
This Statement amends FIN 46(R) to replace the
quantitative-based risks and rewards calculation for determining which
enterprise, if any, has a controlling financial interest in the VIE with a
qualitative approach focused on identifying which company has the power to
direct the activities of a VIE that most significantly impact the entitys
economic performance and (1) the obligation to absorb losses of the entity
or (2) the right to receive benefits from the entity. Additionally, this
statement requires a company to perform ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity. Prior to
this statement, a company was only required to reassess the status when
specific events occurred. We are required to adopt the provisions of SFAS No. 167
for our first quarter of 2010. We have not yet assessed the impact, if any, of
the adoption of this statement on our financial statements.